Lt represión en los municipios del partido judicial

The Strata Schemes Management Act 1996 (NSW) lays out the responsibilities of owners corporations with regards to budgeting for their schemes. Each strata scheme must have an administrative fund and a sinking fund, which should each be used for a different purpose.

The administrative fund should be spent on:

‡

‡ Maintaining the common property in a good condi-tion on a day to day basis (e.g. cleaning, gardening, repairs)

‡‡Insurance premiums

‡‡Recurrent expenses (e.g. water, electricity, strata man-agement fees, taxes)

‡‡Payments in connection with the owners corporation carrying out its powers (e.g. legal fees, engineers fees) The sinking fund should be spent on:

‡‡The renewal or replacement (but not maintenance or repair) of fixtures and fittings that are part of the common property

‡‡Painting of common property areas

‡‡Acquisition, renewal or replacement of owners cor-poration property (e.g. gardening tools)

‡‡Other capital expenses (e.g. replacing roofing) Every year, the owners corporation has to decide on their budget for the next year. Decisions will be made about how much needs to be put into the administra-tive and sinking funds.

While the strata schemes management legislation requires that estimates for expenses for both the sinking and administrative funds must be made, the budget statements do not need to comply with any set form and there is no legislated minimum amount of savings that must be maintained in each fund.

Under-funded budgets are a concern because they can result in inadequate funds to pay for required works.

However, they also raise equity issues. For example, where a sinking fund has not been adequately funded through levies, this means that previous owners who

have now sold their properties have not contributed, so the new and current owners have to pay more that would reasonably be expected if there hadn’t been shortfalls in the past:

“They [executive committee members] were only really planning for within their lifetime, and they only really had a 10 year plan, and whatever hap-pened after that they weren’t really worried about.

And as a result, they wanted to keep those fees as low as possible and once they died or moved on to some other retirement living then the next person could sort it all out.” (Owner interview, respondent 1002)

Executive committee survey respondents were asked to rate the performance of their own executive committees with regards to preparing budgets and managing budg-ets. Many respondents said that budget preparation (63%) and management (57%) were carried out by the strata managing agent on their behalf. Of the remaining respondents, a small proportion rated their preparation of budgets (13%) and management of budgets (4%) as unsatisfactory.

Respondents to the survey of strata owners were not asked specifically about budgeting practices in their schemes, but issues around budgeting were raised by respondents in open responses to other questions in the survey. Of those owners that had experienced problems with regards to budgeting in their schemes, many of these difficulties related to planning for, and funding repairs.

The survey of strata owners asked respondents whether there had ever been any problems in regard to having building repairs and maintenance carried out in their scheme to the best of their knowledge. The results of this question were presented in Figure 8.3 in Chapter 8.

Aside from concern that the standard of work under-taken was inadequate (24% of respondents), the majority of problems identified in relation to maintenance of their schemes related concerns around the budgeting and financing of repairs works. Many respondents were con-cerned that repairs and/or maintenance had been paid out of the sinking fund, when it should have been paid out of the administration fund (21% of all respondents).

Many (30%) were also concerned planning and budget-ing for repairs and maintenance had been inadequate and that there had been disagreements over repairs and maintenance expenditure, such as how much to pay (20%).

Sinking funds

Owners were asked whether they knew approximately how much money there was in the sinking fund for their scheme. The majority (81%) of owners said that they did, but almost one in five (19%) owners who completed the survey did not. The results differed for those owners who were on the executive committees of their schemes, and those that were not. 90% of the survey respondents who were on their executive committee knew how much money was in the sinking fund for their scheme, compared to 67% of those who were not executive committee members. Given that the owners who com-pleted this survey can be expected to be more involved and interested in their strata schemes than average (see Chapter 5), it is a reasonable assumption that strata owners in general would be less likely to be aware of the state of their sinking funds.

In NSW, all strata schemes are also required to have a ten year sinking fund plan, and to take this plan into con-sideration when setting their annual budgets. A sinking fund plan is a plan for the renewal, repair or replacement of common property, and any associated costs over a ten year period.

However, there is some evidence that the financial plan-ning being undertaken in some strata schemes in NSW is far from ideal. For example, Easthope et al. (2009: 36) found that the most common reason strata owners gave for being dissatisfied with the budgeting undertaken in their schemes for routine maintenance was that “there was little pro-active planning undertaken and that their schemes operated on a ‘crisis management’ model.”

Further, despite the legislative requirement for sinking fund plans, Easthope et al. (2009) found evidence of some schemes in NSW with no sinking fund plan in place. Fur-ther, even when a sinking fund plan is in place, this does not mean that it is necessarily accurate or satisfactory. In fact, sinking fund plans can be set by specialist consult-ants, strata managing agents, building managers, or the owners corporation itself. There is little guidance available as to what an appropriate sinking fund might be:

“Between the committee we decide what the sink-ing fund should be for the buildsink-ing. It’s anyone’s best guess. … even with the legislation that requires the committees to consider the reports or consider the sinking fund, at the end of the day, it’s just guessing in the future and you’re project-ing out items which are essentially ten or twenty years in the future, or they may need to be done in the next five years, who knows …” (Executive committee interview, respondent 305)

It is questionable whether non-specialists would be able to accurately estimate the costs of future works in a strata scheme and this is a cause for concern as inad-equate assessments of the work required with lead to budget shortfalls:

“It’s just sad that people that are on the commit-tee at the time when they think they’ve got lots of money really don’t know how to manage it. If they were told right from the word go, ‘As a ballpark figure, your building will need to have X amount of dollars put away’ … But when they see they’ve got all this money, they’re like ‘I want to get my hands on it now, why is it sitting there doing noth-ing? I want to use it.’ And I would say at least 95%

of owners have no idea what the sinking fund is for or how much really should be there. And if they had some sort of a yard stick – I know not all buildings will have the same problems – but if you said, your building is a block of twenty, it’s a walk-up, it doesn’t have elevators, doesn’t have a swim-ming pool, it’s pretty stock standard, and at year five you guys technically should have this amount in the bank. By year ten you should have this amount in the bank. Just so people know what they have to aim for.” (Owner interview, respond-ent 537, also a professional building manager)

Formal business planning

One tool that can assist with realistic budgeting in strata schemes is a formal business plan that sets out what the executive committee and strata manager will achieve over the year, or a longer period. Executive committee survey respondents were asked whether they had a formal written business plan for their scheme. Only 11%

of respondents said that their executive committee had such a plan and the majority of these found it a use-ful tool. Of those respondents who did not have such a formal plan, 48% thought that such a plan would be beneficial for their scheme. The most common reasons for thinking this were that such a plan would provide direction, focus and clear priorities to guide executive committee actions and that the formality of such a plan would encourage clarity and accountability:

“You’re living in a community ... so in terms of hav-ing a business plan or a goal for that community ... like businesses do it, in five years this is where we’re going to be. Working towards something together, but I don’t know if a separate document

… maybe merging the two together … having a sinking fund report together with a statement on

where you guys are going … So maybe a busi-ness plan would be good for long-term projects.

So if there’s something the strata scheme wants to do together, they could put in a plan to say in ten years we’re going to do this, or in five years we want to build this…” (Executive committee interview, respondent 291)

Participants in the strata managing agents survey were also asked about formal business plans. Only four respondents said that all of the schemes they man-aged had such plans, but a further 32 respondents said that some of the schemes they managed did. Of the 36 respondents who managed schemes with formal busi-ness plans, 13 said the tool was useful in all cases, 22 in some cases and only 1 said it was not useful. However, of those managers who did not manage any schemes with such a plan, only 16 (31% of respondents) thought such a plan would be useful. Common reasons for thinking a plan would not be useful included that such plans were not necessary for small schemes, and that the sinking fund plans in schemes provided a similar role.

“Often the owners are taking a relatively short term view of their building because they might be selling or moving up or they may be still inves-tors and they’re looking at yield and that sort of thing. So they take a very narrow view. Whereas I think the strata manager has an obligation to the building to look almost three to five years out for the building. The trouble is you’re generally only employed for twelve months so they [managing agents] have to do only as much as they can in that timeframe because they may get kicked out.

If they did have a three-year view for the build-ing, the owners would be more inclined to keep them in place for three years.” (Managing agent interview, respondent 56)

Influence of the developer

In the survey of managing agents, respondents were asked whether any problems had arisen for them as a managing agent as a result of a builder or developer maintaining an interest in any of the schemes they managed. Fifty-five percent (47 of the 85 respondents who answered this question) said that problems had arisen for them in this regard. When asked what types of problems, the most common problem identified were financial problems (21 mentions) and reluctance to address defects (17 mentions). Reluctance to address defects was discussed in Chapter 8. The financial prob-lems raised included withholding (not paying) levies,

resisting spending on the building, misusing funds and underfunding or underinsuring the scheme. Respond-ents to the Executive Committee survey raised the same concerns, in addition to concern that the developer had set levies too low:

“They [the executive committee] have knowingly significantly under-budgeted for the sinking fund, because the developer at that stage still owned over fifty per cent of the properties. So he didn’t want to be paying out extra money into the sink-ing fund, he wanted to keep his costs as low as he could and get out of it with as much money as he could. So they were woefully inadequate. I think ... it was something like a quarter of what we ended up getting [as] an estimate from a quan-tity surveyor.” (Executive committee interview, respondent 130)

“When you’ve got a builder, I’m talking about a brand new place now, and he says the strata fees will be X amount of dollars, and he’s so way out with the figures, because I know myself, looking at a building, when you can see extensive gardens, and swimming pools and lifts and everything, that down the track are going to be big main-tenance. And then you’ve got … the strata fees are this much, just to make it so attractive so you can buy. If you’re budgeting on the value of a property and then you think, well, I could do that if the strata fees are this much I can afford it. But

… you move in and as soon as the builder’s gone, a year later, you’ll be doubling those strata fees.

I think that’s a big problem, and I’m blaming the builder, the developer, because he’s obviously made it sound very attractive, oh, you can afford to move in here, because it’s only this much. And once you’re in it’s a different ball game.” (Owner interview, respondent 691)

The issues discussed in this section strongly suggest that there is a need for a system of indicative benchmarks for the level of sinking fund requirement that an owners corporation should put aside, differentiated by type and age of scheme in order to assist owners corporations and lot owners to judge the most appropriate level of sinking fund provision. Such a system, regularly updated (like the building cost estimates available to the build-ing industry) and reflective of best practice, would help avoid the difficulties some owners find themselves in when funds for major works in their schemes are

unavail-able or where developers fail to adequately budget for such funds at the start of a scheme.